It's Not That Big a Deal

Americans Aren’t the Ones Who Should Be Mad about Chinese “Dumping”

One of the few issues upon which Clinton and Trump seemed capable of agreement in the second debate was that cheap steel from China was hurting America. Given how alarming Sunday’s exhibition was, it might have been a nice respite. That is, if they had not both been so wrong.

China produces about as much steel as the rest of the world combined. This is due partly to cheap labor and strong domestic demand, but mostly to heavy government subsidies. Now that China’s economic growth has slowed, markets are awash with cheap Chinese steel. This has led China’s trading partners to accuse China of “dumping” steel.

Dumping, for those not familiar with the term, refers to the act of selling a good in a foreign market for less than the cost of production. It’s against WTO rules and is penalized by tariffs implemented by importing nations. The United States recently levied a 522% tariff on Chinese cold-rolled steel, which is used for construction and to make shipping containers and cars.

The general consensus, dutifully embraced by both candidates, is that dumping is bad for the importing country and an act of aggression by the exporter. But if you think about it, this is pretty absurd.

First of all, countries don’t trade with each other. The United States doesn’t buy wine from Portugal; American companies buy wine from Portuguese companies. We’re not “getting killed” on bad trade deals as Donald Trump fears; there isn’t even a “we” in the sense that he suggests. There are only people, and people don’t habitually engage in voluntary exchanges at a loss. It should be obvious that importers (American companies, in this instance) are the ones benefiting from cheap steel from China. That’s why they prefer to buy it over more expensive steel made domestically.

It’s true that China’s not a market economy in the same way that America is; their government owns and subsidizes far more than ours. That might sound like an advantage for the Chinese, but it’s really not.

Chinese producers are able to sell steel for less because of large subsidies from their government. The people who benefit from this are the people buying and selling steel–importers and Chinese steel companies, respectively. The people who lose are non-competitive firms and those paying for the subsidies…which would be the Chinese taxpayers.

Subsidized exports are really a transfer of wealth from within a country to without. Importing parties are able to be more profitable and productive, which is precisely why Donald Trump builds with Chinese steel and why we’re all better for it. Yes, it hurts American steel companies, but whatever resources are devoted to domestic steel production can be diverted to other areas with better returns.

Conversely, import tariffs are paid by the importer, and ultimately the consumer. In other words, in order to protect us (read: domestic steel companies) from what amounts to discounted steel, our government taxes the hell out of it so that we end up paying more. Saying that this helps our economy is like claiming that rolling up your sleeves makes your arms warmer. Remember that any jobs or income generated by such tariffs comes directly at the expense of American consumers who are being forced to forgo savings or purchases they would have made with the money they saved on steel.

If millions of tons of steel fell from the sky would we draft legislation to tax the heavens? No, we’d take the free steel and build things with it. If China wants to take money out of its citizens’ pockets and use it to make steel for the rest of the world, Chinese citizens should be outraged. But why should the rest of us complain? When someone gives you a gift, the correct response is: “thank you.”

2 thoughts on “Americans Aren’t the Ones Who Should Be Mad about Chinese “Dumping””

I agree with you in principle, however the problem with dumping is that the supply of steel offered at below-market prices will run out, so diverting domestic capital elsewhere is not a realistic option. Furthermore, steel consumers buying from Chinese producers unfairly penalizes otherwise competitive domestic steel producers, so perhaps this is a circumstance where the government has a right to step in and balance things out. I know we both agree that subsidies create market inefficiencies and should be avoided. And sure, in isolation, steel consumers benefiting from below-market prices sounds like a good thing. But I think the government has a right to impose a tariff to off-set the Chinese subsidies because that is what is best for the country as a whole in the long-run.

I wrote a whole reply to this and then closed the window To summarize, I think you made some really good points, but I’m not sold. My objections are:
1. Targeted tariffs necessarily involve a transfer of wealth from consumers to special interests who naturally have greater political clout. That alone makes me nervous.
2. Re:the assumption that subsidized steel will run out–If China is exporting subsidized steel the gov is already loosing money and should have stopped the subsidies. I expect that they aren’t able to for social (steel mills employ a lot of people in China) and political reasons (the Chinese gov assumes far greater responsibility for economic downturns than more market-based govs). I assume that your point here is that the cost of shutting down and then reopening American factories exceeds the benefits of cheaper steel over the time it’s available, thus making tariffs the economically efficient option.
3. Re:better for the country as a whole in the long run–“American” steel companies are really nothing of the sort. I assume they have capital all over the world. The steel industry is relatively small in America, employing around 150,000 people (2014), but steel consumers are ubiquitous. I don’t know that the continued employment of those people outweighs the opportunity cost the tariffs impose (I don’t know that it doesn’t either to be fair).
4. If gov intervention is ok to address temporary shifts in supply curve or changes supply schedules, where do we draw the line with that logic? All things are temporary and I’d be nervous about the kind of precedent we’re setting.
I think that was most of it. Anyway, if I’m being too narrow-minded (it’s been known to happen), let me know. Let’s settle this the old-fashioned way while you’re home: over scotch. Also, this isn’t a dogmatic stand against protectionism ad infinitum. I get that there are cases that merit such action. I just don’t think this is one of them.